Merrill's Thain, Cuomo Discuss Auction-Rate Probe

Merrill Lynch CEO John Thain met with New York Attorney General Andrew Cuomo on Thursday in an attempt to reach a settlement of the auction-rate securities probe, CNBC has learned.

In a CNBC interview earlier Thursday, Cuomo threatened to bring Merrill to court on Friday unless a settlement was reached.

"Today is the last day," Cuomo said. "If we don't settle today, tomorrow at this time we'll be in court."

Merrill reached a settlement with Massachusetts earlier Thursday over auction-rate securities, a $330 billion market that collapsed in February.

Regulators have been investigating the collapse in the market to determine who was responsible for its demise and whether banks knowingly misrepresented the safety of the securities when selling them to investors. Several Wall Street firms have already reached settlements with the regulators.

AG Cuomo on Auction Rate Probe

The auction rate probe is now settling on mid-level players, with NY State attorney general Andrew Cuomo

Merrill Lynch earlier this month agreed to buy back an estimated $12 billion in auction-rate securities, though the company said it has already been buying back the debt. Merrill Lynch's plan was on a voluntary basis and put no set timetable on the transactions.

Cuomo said he wants the investment bank to buy back the securities within a set period of time, and to also pay fines for having pitched them as safe investments to customers.

Watch the entire Cuomo interview at left.

In the CNBC interview, Cuomo said he'd prefer to settle the case and help refund money to those who purchased the securities, just as he has with the other banks involved. He called the auction-rate securities case "an investor's worst nightmare."

"I don't like to go to court," Cuomo said. "I like to resolve a problem, I like to get it done quickly, get people their money back. That's what this is all about, restore confidence in the market."

His office has reached $42 billion in settlements with five other banks, including Citigroup , Morgan Stanley and Wachovia , during an investigation into whether the banks misled investors who bought the offerings thinking they were secure but in fact were attached to high-risk debts that collapsed.